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VICTORIA — The B.C. government will immediately launch a new round of major cuts because of a three-year, $1.1-billion hit to provincial revenues caused by plummeting natural gas prices, Finance Minister Mike de Jong announced Thursday.

Speaking to reporters, de Jong promised an immediate hiring freeze across government and a wage freeze for public sector managers, including those at schools, universities and health organizations. He also signalled a possible ratcheting-up of the already tense negotiations between the province and its public sector unions.

“Call these austerity measures — they are designed to immediately curtail spending in areas where government has some discretion,” de Jong said. The government will review whether it can still afford its public-sector bargaining mandate — that any wage increases must be met by corresponding savings found within government operations.

“This (the natural gas shortfall) obviously impacts on the dollars available to government and we’re going to need to look at that,” he said. “Beyond pointing out the obvious, that there is clearly no additional money available, I’m hopeful we can resume discussions.”

De Jong also said there would be “extreme spending controls on travel and discretionary expenditures” within government.

But all these actions would still only patch about one third of this year’s expected $241-million shortfall, he said, so further measures will be needed.

De Jong would not say how he plans to make up the other two thirds of the province’s fiscal gap this year, saying only that tax increases are “not our preference” and that he is “anxious to avoid impacting the programs that British Columbians rely upon.”

Even after closing this year’s $241-million gap, he added, the province will still see a larger-than-expected deficit.

In its first quarterly report released Thursday, government projected a $1.14-billion deficit — up $173 million from what had been previously expected, due to factors including foregone Port Mann tolls and lower-than-expected royalties for other resources.

New Democratic Party finance critic Bruce Ralston said he rang the alarm bell on natural gas projections in May, but the government didn’t listen.

“I said to the minister that the risk seemed to me to be much more on the downside, given the world is awash in shale gas,” he said Thursday. “They gambled on a price on natural gas and now that hasn’t happened.”

Ralston added he is now skeptical about de Jong’s plans to solve the problem.

“One has to be a bit skeptical about the austerity measures as well, given they claim that they’ve been grinding down discretionary costs in the broad public service since the fall of 2008,” he said.

B.C. Conservative Party leader John Cummins said he believes the government is overplaying the crisis, adding documents released Thursday show that projected growth in the B.C. economy has improved since the February budget.

“The fact is that B.C.’s economy is doing better than the B.C. Liberals care to admit,” Cummins said in a news release.

“And that means that the province’s finances are considerably better than they want to acknowledge.”

Overstating the province’s economic woes allows the government to pick a fight with public sector unions, Cummins said, and to defy expectations by balancing February’s pre-election budget.

John Winter, president and CEO of the B.C. Chamber of Commerce, supports de Jong’s approach.

“Our members recognize that these figures are a result of a weak global economy and slumping natural gas prices which have created a situation where B.C.’s resource revenues are significantly down from projections,” he said in a news release. “We fully endorse the province’s focus on returning to a balanced budget, and urge Finance Minister de Jong to do so by 2013 through spending restraints.”

Natural gas prices have plummeted since 2008, dropping from more than $6 per gigajoule down to about $2 per gigajoule now.

The province had banked on the price rebounding last year, though forecasts now call for that turnaround to be significantly delayed. The continued slide means B.C. now expects to collect $1.1 billion less in royalty revenues over three years than it had planned in the February budget.

Thursday’s financial update also referenced storm clouds including the European sovereign debt crisis, a sluggish U.S. economy and slower than expected Asian demand.

The report also said the province has had to cut $977 million in planned capital spending over three years — a measure the government is using to keep overall debt in check.

Despite the raft of bad news, de Jong said he remains devoted to returning the province to balance.

“I am committed to balancing the budget next year,” he said. “You cannot, in my view, build and strengthen an economic recovery on the basis of unsustainable spending by government.”

Due to the lower gas revenues, government said in its report that $389 million will need to be cut next year to balance the budget. This comes in addition to the $475 million the province hopes to rake in next year from the sale of surplus government assets.

The following year, $483 million in savings — the balance of the $1.1 billion — will need to be found.

The B.C. Government & Service Employees’ Union responded to de Jong’s comments Thursday with concern.

“Spending reductions will put added pressure on public services like social workers and child protection,” union president Darryl Walker said in a written statement.

Speaking to reporters, he said it is too early to know what de Jong meant when he said government will review the public bargaining mandate.

“It doesn’t mean anything until I get a chance to talk to Mr. de Jong or somebody that represents the government and find out what their belief is in what that means,” he said.

De Jong added Thursday that his government will almost certainly cancel the fall sitting of the Legislature, which was set to begin Oct. 1.

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